Do you own a cell phone? If you are like most Americans, this question comes across as comical. What seemed to be an optional (albeit useful) device has quickly become a must have in this new connected world. And this love affair continues, a recent Nielsen survey found that U.S. consumers spent 34 hours and 21 minutes on their phones monthly -- more than that spent online of 26 hours and 58 minutes.
So it's not surprising that wireless providers have been the beneficiary of this trend. Although there is an illusion of a fierce price war, revenue per postpaid customer figures have increased nearly 10% since 2010 according to New Street Research. Due to the extreme costs with establishing, upgrading, and maintaining a wireless business, it is a virtual oligopoly between four providers: Verizon (NYSE:VZ), AT&T (NYSE:T), Sprint (NYSE:S), and T-Mobile US (NASDAQ:TMUS). And when it comes to the most expensive provider, the answer is Verizon.
"We never have and never will lead on price"
A recent study by Cowen and Company confirms what many have always suspected, Verizon is the most expensive wireless carrier. The fourth-quarter survey found that the average monthly Verizon bill was $148, followed by Sprint at $144 and AT&T at $141. Young, scrappy upstart T-Mobile, led by brash CEO John Legere, comes in substantively lower at $120.
And if you think Verizon has plans to lower its cell phone bills in order to compete, you'd be wrong. Last year, CEO Lowell McAdam addressed the "pricing war" with investors at a conference by stating, "We never have and never will lead on price." And to be perfectly honest, as the largest wireless provider, Verizon really doesn't have to.
A luxury wireless provider?
Instead Verizon attempts to compete on experience by proving the biggest and most reliable network. Right now, Verizon boasts of having the largest 4G LTE network with McAdam stating the development is a year ahead of AT&T and three to four years over other rivals. And although AT&T generally wins speed tests, Verizon boasts of its reliability and the aforementioned larger network.
And having the largest 4G LTE network is important with Verizon's overall strategy. Verizon seeks to lead wireless companies in providing the best experience for data users and then to monetize the experience. Verizon famously axed its unlimited data plans in 2011 and now seeks to monetize data more than voice and text by treating those two services as loss leaders with its unlimited voice and text plans.
To focus on data is a smart move for Verizon, the growth in data usage is phenomenal. The same Nielsen survey shows U.S. Android and iPhone users 18 and over spend 65% more time using apps than they did merely two years ago. As data growth continues to skyrocket, look for Verizon to continue to charge more for it. And although Sprint and T-Mobile boast of unlimited data, they still are relegated to third and fourth place, respectively, although it's prudent to mention T-Mobile has experienced substantive growth with its "Un-carrier" initiatives.
We're worth it
Verizon is the most expensive wireless carrier, but it feels users should pay a premium for its network reliability and expansive 4G LTE coverage area. So to better enrich shareholders, the company decided to focus on plans to better monetize data instead of employing a cost leadership model in which it lowers data prices to acquire new subscribers like Sprint and T-Mobile have with their unlimited data plans.
Can Verizon continue to enjoy its status as the largest wireless provider while others are providing unlimited data plans? Verizon certainly thinks so and McAdam considers unlimited data plans "unsustainable." As data continues to become an increasing factor to the masses of iPhone and Galaxy wielding consumers, Verizon shareholders should hope McAdam is right.